File picture: James White

PRETORIA – A lack of growth in residential rentals and increased competition in the Johannesburg and Pretoria markets have resulted in listed property company Octodec Investments deciding against committing to commence construction on any major developments in its current financial year. 

Jeffrey Wapnick, the managing director of Octodec, said yesterday the problem was the absence of any rental growth, with the result that there was uncertainty about when a project that was not initially accretive would stop being a drain on distributions.

“That is the thing that worries us. We are not confident about the future just at this moment to a large extent, because of what is happening economically and politically.

“While new and redevelopments are important to grow our rental income stream and contribute greatly to the rejuvenation of surrounding nodes, they require significant upfront investment, and the phased take-up of units creates a lag effect on returns in the short term,” he said.

Wapnick attributed the lack of rental income growth to an extremely tight economy, which had resulted in the man-on-the-street that Octodec serviced “really battling to make ends meet”. He said management’s focus for the year ahead would continue to be on improving the existing portfolio, retaining tenants and selling non-core assets, with the proceeds used to pay down debt.

A total of 20 non-core or underperforming properties were sold in the year to August at a combined exit yield of 7.9 percent and a combined premium of 1.9 percent to book value.

Wapnick said 10 of the sales transferred during the financial year for a total of R61.6 million, a further two properties were transferred after year-end for a total of R69.8m, while the transfer of the remaining eight properties for a total of R92.1m was expected to take place within the first half of Octodec’s current financial year.

Anthony Stein, the financial director of Octodec, said about 50 properties were held for sale worth about R200m. Octodec portfolio comprises 306 properties valued at R12.9bn.

It yesterday reported like-for-like growth in rental income of 2.6 percent for the year to August from 5.3 percent in the previous year.

Distributions a share rose marginally to 203.4c from 203.1c. Total revenue rose by 3.1 percent to R1.89bn from R1.83bn. Vacancies, including properties held for sale, declined to 18.6 percent from 19 percent of gross lettable area.

Office vacancies increased to 26.4 percent from 18.7 percent. Wapnick attributed this largely to two large government departments vacating two premises comprising a total of 7 139m². He said one of these buildings was next to Louis Pasteur Hospital in Pretoria, and consideration was being given to converting it into an expansion for the hospital.

Wapnick said strong demand continued to be experienced for Octodec’s core central business district nodes for retail and residential space, but affordability remained depressed in the current economic environment.

Shares in Octodec closed 0.10 percent lower on the JSE on Monday at R20.25.